Crude Rallies as Saudis Call for 'Urgent' OPEC+ Meeting on Output

April 5, 2020, New York — Crude prices rallied 25% Thursday after Saudi Arabia called for an "urgent meeting" of the OPEC+ alliance and other producers to negotiate an output cut deal.

NYMEX front-month crude settled at $25.32/b, up $5.01.

The statement followed comments from US President Donald Trump, who earlier in the day tweeted that he had spoken with Saudi Crown Prince Mohammed bin Salman, who had in turn called Russian President Vladimir Putin to heal their oil market rift.

The market has been glutted with crude as Saudi Arabia and Russia have yet to back off their plans to expand market share despite the drop in demand, which has tumbled as coronavirus spread has slashed consumption of transportation fuels.

However, some were skeptical about the possibility of those production cuts materializing in time to prevent a further price collapse.

An immediate reduction of 10 million b/d is required to "prevent inventories globally from reaching tank tops," said Ed Morse, Citi Group's global head of commodities research. "That is based on a demand drop globally of nearly [16 million b/d] for all of 2Q, but peaking at [18.5 million b/d] over the coming 8 weeks," he said.

Earlier in the day, Russian energy minister Alexander Novak said a coordinated OPEC+ production cut would not be enough to compensate for the fall in demand caused by the coronavirus pandemic, which he said could reach 20 million b/d.

Oil producers have already started to cut 2020 spending and operations, primarily in the US.

In the meantime, with travel restrictions still in place, crude demand is expected to remain low as refiners cut operations because of depressed margins.

PRICES

Oil

**West Texas Intermediate at Midland, Texas was assessed by S&P Global Platts at $19.02/b Thursday, up from $10.09/b March 30, but down $40.84/b from January 20, when commodities markets first began reacting to the virus.

**Western Canadian Select at Hardisty, Alberta, was assessed at $12.45/b Thursday, up from $8.03/b Wednesday, but down from $35.24/b on January 20.

**Atlantic Basin physical crude price differentials are weakening because of the refinery run cuts, with West African Djeno crude, for instance, assessed at a $7.10/b discount to Brent Thursday, down from a $1.50/b discount March 2.

**Belarus said it expects to receive 488,666 b/d of crude from Russia in April, paying roughly just $4/b for the crude.

**Market participants expect Saudi Aramco could cut price differentials even further for its crude grades flowing east by $2-$3/b this month based on plunging demand and the sharp drop in underlying reference markers for the Middle East crudes in Asia.

**The New York Harbor jet crack against Brent ended Thursday at minus 67 cents/b, down from $14.19/b January 20.

Gasoline

**The June NYMEX RBOB crack spread vs. ICE Brent ended Thursday at around 33 cents/b, rising from minus $6.29/b March 23 as refiners have cut runs, but down from $11.78/b one month ago.

**Massive reductions in downstream demand following coronavirus stay-at-home orders have hammered flat prices for gasoline in Chicago. CBOB in Chicago was assessed at 16.65 cents/gal Wednesday, while its RBOB counterpart was assessed at 28.65 cents/gal, both falling to historic lows.

**With Saudi Arabia and Russia in a pricing war to flood the market with cheap crude, and refiners cutting runs on low demand, the crude contango has widened, encouraging global inventory builds.

**After Democrats in Congress blocked efforts to buy US crude for the Strategic Petroleum Reserve, the Department of Energy announced Thursday that it was making 30 million barrels of space available for US producers to store crude. The DOE said it would make an additional 47 million barrels of storage space, accounting for the remainder of its total capacity, available at a later date.

**US commercial crude stocks jumped 13.83 million barrels to 469.19 million barrels the week ended March 27, according to the US Energy Information Administration, the second-largest build ever reported by EIA.

**Some supertankers are being booked to store crude for up to three years -- potentially the longest ever duration for floating storage. Sources said two VLCCs, NS Lemos and Kyklades, had been placed on subjects for a time charter of up to three years for a daily rate of $48,000.

**Over the next few months, Platts Analytics sees global "massive" crude stock builds of 500 million barrels in its best-case scenario, compared with the 1 billion-barrel build in its worst-case scenario, relative to the end of February levels.

**A record 11.1 million barrels of LOOP Sour Crude oil storage will be auctioned April 7, auction platform operator Matrix Markets announced Monday. During the monthly online auction, 11,100 capacity allocation contracts, spanning from front-month May through the third quarter of 2021, will be available to bidders.

**Saudi oil giant Saudi Aramco is moving a substantial amount of its crude to storage caverns in Rotterdam in the Netherlands and Sidi Kerir in Egypt. Around 800,000 b/d to 1 million b/d -- or 10%-15% -- of Saudi crude exports has recently traveled to Europe, with France, the Netherlands, Poland, Greece, and Spain making up the key demand hubs, according to S&P Global Platts estimates.

**Rising freight rates are posing a problem for traders looking to do floating storage of jet fuel in Europe, with some fixtures being canceled. The 64,917 dwt Stena Polaris, which was previously put on subjects for jet fuel floating storage at $25,500/day for 45 days, with an option to extend to 90 days, failed owing to higher rates, shipping sources said.

Crude output and sales

**Saudi Arabia on Thursday called for an "urgent meeting" of the OPEC+ alliance and other producers to negotiate a deal on output cuts that could stem the coronavirus-induced freefall in oil prices.

**US President Donald Trump tweeted Thursday that he had spoken by phone with Saudi Crown Prince Mohammed bin Salman, who in turn called Russian President Vladimir Putin to heal their oil market rift. Trump said he expects a crude output cut of 10 million b/d, and possibly as high as 15 million b/d.

**Russian energy minister Alexander Novak said a coordinated OPEC+ production cut would not be enough to compensate for the fall in demand caused by the coronavirus pandemic, which he said could reach 20 million b/d.

**Argentina's YPF offered a rare 1-million barrel cargo of Canadon Seco crude for April loading and a 1-million barrel cargo of Medanito for April loading. YPF has cut refinery runs on low demand and is thus offering Canadon Seco crude for export for the first time in 20 years.

**US crude exports fell 700,000 b/d last week to 3.16 million b/d, according to the US Energy Information Administration. Traders said that activity in the spot US export markets had been limited recently amid a lack of global refiner demand.

**PetroVietnam aims to produce 10.62 million mt of crude in 2020, down 18.9% from 2019, and may further cut its production target as prices are too low and exports not profitable. Also, PetroVietnam's oil and gas exploration and production projects have been impacted by the coronavirus outbreak as many contractors are unable to send workers to the operation fields as planned.

**With refined products demand weak, several refiners in North Asia declined offers from Middle East producers for additional crude volumes to their allocated April term barrels, despite low oil prices. Japanese refiners are still mulling whether to increase crude oil purchases from Saudi Arabia and the UAE for May loading programs, after seeing no room for additional intake from the Middle East for April.

Aviation

**Some of the world's biggest airlines are slashing their flights for the coming months, and jet fuel demand, which accounts for almost 8% of total oil demand, is taking an unprecedented hit.

**Middle East jet fuel/kerosene demand will fall by 125 kb/d, or 23% year-on-year, to some 420,000 b/d in 2020, which would be the lowest in at least a decade, according to FGE Energy.

**European airlines are at the top of the table for making reductions in capacity this week with British Airways announcing the suspension of all flights out of London's Gatwick Airport Tuesday.

**Singapore Airlines Group said Monday it was cutting 96% of its capacity through the end of April in the wake of travel restrictions, while the UAE's Emirates, the world's biggest long-haul airline, will suspend most passenger flights as of March 25, operating mainly cargo.

**The International Airlines Group, which includes British Airways, Vueling and Iberia, plans to reduce capacity by at least 75% compared with April and May 2019.

INFRASTRUCTURE

Upstream

**Global producers have announced spending cuts and reduced operations because of low prices, with the bulk of the cuts coming from North America.

**More than 1 million b/d shut-ins at the wellhead, nearly all in the price-sensitive US shale sector, have already been announced with spending and rig counts dropping daily.

**BP is cutting its planned capital expenditure this year by around 25% from previous guidance to $12 billion, targeting reductions in US shale activity as well as spending on exploration and major projects, with some output reduction expected.

**After announcing a 100,000-b/d cut to its crude production less than a week ago, Brazilian state-led Petrobras on Wednesday doubled its plan for output cuts to 200,000 b/d.

**The cuts have begun to materialize in weekly rig activity. The US oil and gas rig count fell 45 this week to 721, rig data provider Enverus said Thursday. That followed an even steeper plunge of 47 last week.

**Brazil's National Petroleum Agency, or ANP, suspended the 17th bid round sale of oil and natural gas exploration and production concessions scheduled for the second half of 2020. The round was expected to include 128 offshore blocks located in deep or ultra-deep waters of the Campos, Para-Maranhao, Pelotas, Potiguar and Santos basins.

**A plunge in prices has slashed the profit potential for oil production in Argentina, raising concerns that a cutback in investment could stymie the development of Vaca Muerta, its biggest shale play -- and one of the largest in the world. Pampa Energia, one of the biggest energy companies in Argentina, has postponed its drilling plans in Vaca Muerta.

Downstream

**Fujairah port, the Middle East's crude product storage, and trading hub put plans on hold to expand its storage capacity because of slumping global. Fujairah, which currently has crude and oil product storage capacity exceeding 10 million cubic meters had plans to reach up to 16 million cubic meters in 2023.

**Global refineries have started to cut operations because of the low demand for transportation fuels. In the US, refiners are expected to cut runs by roughly 2.2 million b/d in April from January's 16.5 million b/d figure, according to Platts Analytics.

**Canadian refiners have joined in, with Newfoundland's 130,000 b/d Come by Chance refinery "transitioning to standby mode this week," a company spokeswoman said, while market sources said that Irving's 330,000 b/d refinery in Saint John, New Brunswick, were cut by 25%-30% as gasoline cracks turned negative.

**A number of refineries in Europe have reported cutting runs, including ExxonMobil's Gravenchon and Fos plants in France, and API's Falconara plant in Italy.

**Brazil's Petrobras is currently running refineries at about 74% of installed capacity compared with an average of 79% in 2019.

**Japanese refiners are considering cutting operating rates further in April - despite the rate in March falling to the typical turnaround level before the maintenance season has started.

**Refinery utilization rates have risen across China with state-owned oil giants raising run rates to around 70% of their combined nameplate capacity in March from a record low of 67% in February. Independent refineries in eastern Shandong province also lifted their average run rates to 60.3% as of March 25 from an average of 41.5% in February, according to local information provider JLC.

**Refiners in Vietnam have been forced to lower their production capacity. State-controlled PetroVietnam's Binh Son Refining and Petrochemical, or BSR, has cut the capacity of its 148,000 b/d refinery at Dung Quat to 105%, down from 108% before the end of February, an official from BSR said Tuesday. Crude rallies as Saudis call for 'urgent' OPEC+ meeting on output